Posted
by
timothy
on Monday October 22, 2012 @02:30PM
from the not-after-what-you-said dept.

An anonymous reader writes "Samsung has decided to terminate an ongoing contract with Apple to supply LCD panels for use in its growing range of devices. That means, come next year, there will be no Samsung panels used across the iPad, iPod, iPhone, and Mac range of devices. The reason seems to be two-fold. On the one hand, Apple has been working hard to secure supplies from other manufacturers and therefore decrease its reliance on Samsung. On the other, Apple is well-known for demanding and pushing lower pricing, meaning it just doesn't make business sense anymore for Samsung to keep supplying Apple with displays."

Or perhaps Samsung was simply not willing to reduce prices as low as Apple's other screen manufacturers like LG were? Or was not willing to commit to the volumes Apple wanted? Or any other many reasons why they might end this kind of supply contract?

"Google has also been working with Samsung to launch a 10-inch tablet, confirming leaks which suggested Google had teamed up with the Korean manufacturer for another device. Our source tells us that internally the tablet goes under the name “Codename Manta”, runs Google’s new Android 4.2 operating system (previously referred to as Key Lime Pie, but is set to retain the Jelly Bean branding), and will offer a 2560×1600 pixel (16:10) resolution, which we believe will offer around 300 pixels per inch (PPI) compared to the new iPad’s 264 PPI."

Or perhaps Samsung was simply not willing to reduce prices as low as Apple's other screen manufacturers like LG were? Or was not willing to commit to the volumes Apple wanted? Or any other many reasons why they might end this kind of supply contract?

Give me a break. The gun is still smoking from two of the worlds largest vendors going head to head in a monster legal battle, and we want to sit here and jerk each other off with all the other business theories as to why a contract was terminated between the two?

Seriously, let's stop bullshitting each other here with answers straight out of the MBA textbook already. After what they just went through, one does not simply kiss and make up.

We all know damn well why this happened, regardless if anyone will utter a word beyond the golf course.

Apple has been moving away from relying on Samsung for parts, for over a year now.

At some point, one of them was going to cut the ties. The patent lawsuit that turned them from frenemies to just plain enemies was probably that point. And after the outcome, Samsung probably wanted to hurt Apple.

But Apple has been preparing that exit for quite a while now. So it's not too great a hurt.

To break a contract with them before they had alternatives lined up would have resulted in yet another suit which Samsung may well have lost. I imagine they timed their cut from Apple very carefully to ensure there was a reasonable understanding that Apple could transition to another supplier.

That said, the current situation plays into Apple's favor. They *LOVE* being 'limited' 'exclusive' 'hard to find' 'highly sought after.' We know this because every new release of every new product starts with an art

I think it makes it easier for future employment chances when you say you quit a place then were fired; you can spin quitting into any fluff, like I needed some time with the family or whatever; but making a firing look good is much harder.

No, it's more likely economic issues. I work for a semiconductor company and we also stopped doing business with Apple (and some other major names) because they believe they wield such power (because of the huge quantities they order) that they constantly break contracts in order to demand lower prices. We were losing money on every part sold to Apple. Finally, the next time Apple threatened to take their business elsewhere if we didn't lower the price a few more cents per unit, our CEO told them not to let the door hit them on the way out. Since then, our profits have gone up.

Wal-Mart is the king of this type of supplier mistreatment, but they are certainly not alone.

I work for a semiconductor company and we also stopped doing business with Apple... that they constantly break contracts in order to demand lower prices. We were losing money on every part sold to Apple.

With what results? Have you found other customers who will buy comparable amounts (in aggregate) and pay higher prices? Or did your company's product volume simply decrease?

When you can make a profit of $4 a part from 20 smaller customers who together buy say, 10M parts, but you lose $0.05 per part on 100M parts for Apple (or another big supplier-raping customer, there are many - just pick a big name), the choice is pretty easy.

Since dumping Apple and a few other major customers we gained hundreds of new smaller customers who could never get our inventory before because all the big players were buying it up. We went from a $2.5B gross revenue company that had a loss every quarter to a sub-$1B gross revenue company that has a profit every quarter. And now many of the big players are coming back, hat in hand, to try to get some of our inventory.

When you can make a profit of $4 a part from 20 smaller customers who together buy say, 10M parts, but you lose $0.05 per part on 100M parts for Apple (or another big supplier-raping customer, there are many - just pick a big name), the choice is pretty easy.

A semiconductor guy saying that?!? No, the answer is not easy, and any option you choose may banckrupt you.

I work for a semiconductor company and we also stopped doing business with Apple... that they constantly break contracts in order to demand lower prices. We were losing money on every part sold to Apple.

With what results? Have you found other customers who will buy comparable amounts (in aggregate) and pay higher prices? Or did your company's product volume simply decrease?

You just asked if they could make it up on volume when they clearly stated they

Volume is a huge deal if you are loosing money on each item. If you're losing 5 for each unit you ship but only ship 1000, you lost $50. If you are losing 5 for each unit and you ship 100,000,000, you lost $5,000,000. That is pretty significant.

When I worked for IBM in the '80s there was a policy for suppliers:
1. We aren't the supplier's sole/major customer.
2. They aren't our sole/major supplier.
3. We changed suppliers every few years so there was no risk of dependency building up.
Also, it doesn't do anyone any good to bankrupt your suppliers. Some competitor could swoop in and buy them out. Their skilled people may leave the industry. They may merge with their competitor and reduce diversity of supply. And so on.
No sane manufacturer puts his suppliers in jeopardy by forcing them to sell at a loss.

IBM takes a longer term view. The young Turks of Silicon Valley don't. They think they will never run out of suppliers to starve. In the short term they are right. In the longer term IBM is right, but in a day when the CxO and Board can't see past the next quarterly report the IBM view is less popular.

You can't say that 100%. Samsung is very compartmentalized. I worked at a semiconductor manufacture and they were our biggest competitor for DRAM and 2nd for Flash, but they still bought tons of chips for their electronics business from us inspite of the fact that their chip business was trying to price us out of the market. It's counter intuitive, but it's how they do, or at least how they did business.

In fact, it sounds like you may be exactly correct. Another version of the story I read earlier today had this quote:

“We are unable to supply our flat-screens to Apple with huge price discounts. Samsung has already cut our portion of shipments to Apple and next year we will stop shipping displays,” said a senior Samsung source, asking not to be named, Monday.

And then went on to say:

The report claims that Samsung shipped approximately 15 million LCD panels to Apple in the first half of 2012, with the pace falling to 3 million panels in the third quarter and expected to drop to 1.5 million in the fourth quarter as Apple has shifted to other suppliers.

Long story short, Apple probably made unreasonable demands for price while reducing requested quantities as they shifted to using LG and others, more or less forcing Samsung to terminate the contract. This comes as no real surprise, given the legal battles. Nor is the timing surprising, given that Apple just shifted their chip design (which Samsung had previously collaborated on) to be handled internally, is reportedly moving chip manufacturing from Samsung to TSMC and other companies, and is getting their Flash memory from Toshiba, Micron, and others instead of Samsung, as they used to. If there's something left in the iOS devices that Samsung has a hand in, the smart money would be on it getting moved to a different company as well.

All the talk is of Apple going thermonuclear against Android. Looks like the opposing sides are about to get serious. It might be verging on being anti-competitive but there must be some Samsung execs saying "screw 'em, they wanted a war? We'll give them a war. How long can we run at cost on tablets using the components we would have shipped to Apple to make phones/tablets so cheaply Apple will have no sales for the next year". Then we can get back to dealing with people who are fair.
The usual rules of business deals appear to have been thrown out of the window by Apple's aggression, now time to reap the seeds they've sown in the tech sector.

You've got a rather lot of exaggeration and hyperbole there. For example, Apple never claimed to have singlehandedly created the PowerPC, but they did create it in concert with IBM and Motorola as part of the AIM alliance, and they did initiate the creation process. There was no PowerPC before Apple set the ball rolling; PowerPC was an adaptation of IBM's existing POWER architecture, specifically a single-chip version of the POWER1 processor. Apple never stabbed Exponential Technology in the back by decidin

'Retina Display' is just one of Apple's bullshit marketing terms. Little more than a handy way to convey that they're using higher PPI IPS panels, because the average consumer knows nothing about what PPI or IPS happens to be. It's not a standard.

No, because it is much better to tell people what resolution they get, and what size screen, or such instead of a useless name that means absolutely nothing. The only reason to use such terms is to confuse customers and make it harder to compare your products to the competitions' (of course Apple knows that it's customers don't comparison shop, so they don't really care there)

Hardware manufacturer: We have a new 15 inch display at 2880x1800, wanna buy it?Consumer: Well, is it a Retina Display (TM)?Hardware manufacturer: Well no, that's a brand name owned by Apple. But our display exceeds what they call "Retina Display (TM)" with a PPI of-Consumer: Not a Retina Display (TM), clearly inferior. If it was better, it too would be called Retina Display (TM). Not interested.

Telling the average person that their display is 100 ppi or 300 ppi or 600 ppi is not useful unless they happen to know enough about human vision to interpret it. The term "retina display" is a marketing term that means "you won't see pixelation", and that's actually a useful thing to know. I hate when companies use meaningless numbers (i.e. no connection to purpose) to market things. You end up with idiots pushing and buying 600dpi displays because it's "more" even though it's pointless for human vision.

If you're a techie and you want those numbers for some reason, that's fine. Apple still publishes the resolution and screen size like they always have. But marketing to the common person in a way that is useful to them is not "bullshit".

I love it when someone asks me if their computer is fast enough for "X" and I ask "well, what are your computer specs?" only to get "Oh, i have the Inspertron 5001".... that is completely useless information to me.

Marketing terms that have real world meaning in lieu of a threshold number that it represents might be handy; but not when it's a trademarked term only used by one company. eg: if "retina display" could be used to mean any display over 300ppi then it might be useful, but being an Apple trademar

Actually, it does mean something. It has a defined meaning, from Apple, presented at the keynote based on a formula relating distance, human visual acuity and the spacing between pixels on the display.

At the point where the pixels are indistinguishable (by varying either d or h, or a combination of both), the display is termed "Retina".

This is the actual slide presented by Apple when explaining the terminology ("a" is the viewing angle subtended by the pixel spacing "h" and distance from your eye "d").

If "retina display" is used as a scientific rather than marketing term then it shouldn't be copyrightable by Apple. Any display of equivalent angular density should be freely called a "retina display".

Actually, it does mean something. It has a defined meaning, from Apple, presented at the keynote based on a formula relating distance, human visual acuity and the spacing between pixels on the display.

Actually, the formula has more to do with the distance between the customer's wallet and Apple's bank account.

No, because it is much better to tell people what resolution they get, and what size screen, or such instead of a useless name that means absolutely nothing. The only reason to use such terms is to confuse customers and make it harder to compare your products to the competitions' (of course Apple knows that it's customers don't comparison shop, so they don't really care there)

IPS QSXGA? WTF does this mean to a normal person? Does this chart [wikipedia.org] really help anyone figure out if a device is useful for them? Really they have no idea, because it's not just the size of the pixels, it's how the UI handles it. Retina, while it may be a bit hyperbolic, is very very accessible to the market, and makes sense out of the alphabet or number soup that is display resolution.

Retina is a "brand", and a brand is a promise. Many folks like that kind of speak, and don't care to listen to what they

True story, my mother asked me to set her computer up to use the highest resolution because that is better. So I did. And she complained that everything got small and that every time she clicked something weird would happen (she was clicking about 3 inches to the left of the edge of the monitor, and that was a different row of icons after the resolution changed.

People shopping for TVs in Walmart understand resolution and pixel size, especially if they get to stand 1 foot from a 70" 1080p TV and see that it doesn't really look very good up close compared to a 720p 32" TV at the same distance.

It's not that people are stupid, they're just often lazy and *don't care* to think or understand or learn. Apple fucking LOVES people who only want to hear and use buzzwords with no understanding of what they actually mean, people who don't evaluate products beyond their marketing -- that's been their core customer base since, fuck, the iMac? Likely even earlier than that, but that POS is the earliest device they made in my memory that really went whole-hog on "OMG IT LOOKS SO COOL!" and nothing else.

So it's in fact not a bullshit marketing term, but an effective way to convey an idea that consumers wouldn't normally understand.

"The vertebrate retina (play/rtn/ RET-nuh, pl. retinae, play/rtini/; from Latin rte, meaning "net") is a light-sensitive tissue lining the inner surface of the eye. ", right, totally that definitely makes a lot of sense being applied to a display technology. Very self explanatory.

If only Apples marketing weren't so gosh darn effective. If their marketing sucked, they wouldn't have a stand to leg on. No one would be paying three times as much for second rate hardware that is only half as good as real computer and phone gear but noooooooo, they have to know how to market stuff. Wy don't people just ask slasgdot nerds about what they should buy so they know their stuff was really cool and not just faux cool?

It's really too bad Apple doesn't specify the resolution of the iPad. Oh wait, it's in the first paragraph on their "features [apple.com]" page, along with a handy image comparing its resolution to a 1080p HDTV. It also clearly explains the purpose of a high-resolution display.

Personally I'm surprised Apple had allowed Samsung to have so much of the component business for so long. I'm not talking about patent disputes. Instead I refer to the lessons learned from basing your desktop computer manufacturing on a single supplier's (Motorola) ability to produce the components needed.

It makes good business sense to have alternate suppliers to keep the pricing competitive.

It can be both ways. If Samsung made it clear to Apple that they would ship them panels only for as long as the contract required them to, and would then terminate the relationship, obviously Apple is going to reduce the size of their orders as fast as possible because transitioning to an alternative supplier takes time and you need to ensure everything runs smoothly with the new factories, etc.

Samsung has provided Apple with heavily discounted prices based on really large volume. Apple has actively been working to find other display providers so as to not purchase from Samsung. Samsung no longer has economic interest to provide Apple with heavily discounted displays since Apple is no longer providing the volume to which Apple negotiated. Samsung is simply telling Apple to finish finding their other suppliers as fast as possible because Samsung is no longer going to stay in an agreement to which A

On the one hand, Apple has been working hard to secure supplies from other manufacturers and therefore decrease its reliance on Samsung. On the other, Apple is well-known for demanding and pushing lower pricing, meaning it just doesn't make business sense anymore for Samsung to keep supplying Apple with displays."

On my third hand, Apple and Samsung have been suing the piss out of one another, and that is beginning to strain other business relationships.

They're gigantic multinational corporations dealing with patent law, not two kids going to prom. Neither executive board should suffer any illusion that the other one is going anywhere anytime soon, or that they are the good guys and the other are the bad guys. Neither should be holding grudges.

Now, trying to leverage their positions makes more sense "If you don't drop that lawsuit over patents X and Y, we're going to raise the rates on our screens." And if that doesn't work, that obviously could lead

It would appear they've been tapering off their shipments of displays for while. This really should not shock anyone, aside from the fact that everyone knows Samsung hates Apple, companies move to where the components are priced where they want them to be all the time. Nothing to see here, move along.

Demand from Apple went from 15 million to 1,5 million panels and they are in the process of eliminating Samsung as a supplier completely. They have invested in Toshiba plants [reuters.com] for a reason. There is also an indication that the reason that Foxconn have invested in Sharp had something to do with Apple [businessweek.com]. Although I'm more convinced it has something to do with their IZGO panels then AppleTV.

That Samsung "terminated" the LCD contract has zero impact as Apple wanted to eliminate them from the process anyway and seeing how steadily demand dropped (1,5 million are peanuts if you take into account how many products have LCD panels) that process was already underway. The only thing here is that Samsung can save a little face.

So is this pure PR or even damage control. And it is understandable, if a big client like Apple announced it takes it business elsewhere as a company you gonna take a hit.

I would not say "zero impact" lightly, and other Mac owners agree. Fact is, Samsung makes the best panels Apple offers. As a loser of the 2012 MBA panel lottery myself, it sucks to pay full price and get a clearly inferior machine. There are many threads on this. The worst Apple laptop is the one with an LG panel and Toshiba SSD. The best are those with Samsung parts instead.

Samsung displays were actually the only non-defective displays that shipped with the new retina macbooks. Other screens have had huge ghosting issues (I went through 4 laptops before getting a Sammy screen that actual worked right) pretty much fresh off the lot.

It would be nice if this brought these ridiculous issues out into the light so Apple has to face the fact they completely screwed up the retina launch... of course, we all know that would never happen.

Samsung displays were actually the only non-defective displays that shipped with the new retina macbooks. Other screens have had huge ghosting issues (I went through 4 laptops before getting a Sammy screen that actual worked right) pretty much fresh off the lot.

It would be nice if this brought these ridiculous issues out into the light so Apple has to face the fact they completely screwed up the retina launch... of course, we all know that would never happen.

1: Apple and Samsung get involved in lawsuits.
2: Apple decides to reduce orders from Samsung and order from competitors.
3: Apple demands lower prices for components.
4: Samsung decides to reduce the supply available to Apple.

It sounds like all of those have been gradually happening to a greater and greater degree over time. I don't know which particular item happened first, but once the cycle started it just kept on escalating. The smaller the size of the order by Apple (either in terms of number of components or price per component) the less valuable the contract becomes, and the more Samsung is going to focus on finding alternatives to sell to. The smaller the number of units Samsung makes available to Apple and the less they're willing to budge on price, the more Apple is going to focus on finding alternatives to buy from. The less dependent each of them get on each other, the more the gloves come off in the courtroom. The more lawsuits that get filled, the less comfortable both of them are going to feel about depending on the other to sell/buy components to/from.

2: Apple decides to reduce orders from Samsung and order from competitors.

3: Apple demands lower prices for components.

4: Samsung decides to reduce the supply available to Apple.

It sounds like all of those have been gradually happening to a greater and greater degree over time. I don't know which particular item happened first, but once the cycle started it just kept on escalating. The smaller the size of the order by Apple (either in terms of number of components or price per component) the less valuable the contract becomes, and the more Samsung is going to focus on finding alternatives to sell to. The smaller the number of units Samsung makes available to Apple and the less they're willing to budge on price, the more Apple is going to focus on finding alternatives to buy from. The less dependent each of them get on each other, the more the gloves come off in the courtroom. The more lawsuits that get filled, the less comfortable both of them are going to feel about depending on the other to sell/buy components to/from.

Or, Samsung realized that it could use its manufacturing capacity in making screens for Apple to make screens for its own product and those have a much higher profit margin than they got from Apple.

So that would be #4. As i said, i have no idea which happened first, i haven't done the research. But if Samsung decided to sell their screens elsewhere instead of to Apple, then of course Apple would start finding replacement manufacturers. And then Apple would have even more reason to sue Samsung (all the same "positive" reasons they had before, but less risk of significantly reducing their supply chain.)

And the fact that Apple and Samsung have been at each others' throats in court for years has nothing to do with it.

To be honest, I'm surprised they still did any business with each other. Generally when one company gets the other's product banned from sale, it tends to put a strain on the relationship. But in the mobile market where everybody is suing everybody else, it's probably hard to keep track.

It actually makes a lot of business sense. If you have to pay them money you may as well pay them with as much of there own as possible. This is more a case of Apple's reliance on them as a supplier being reduced to the point where the return on investment of each panel has dropped.

No one is ever really supply constrained for long periods of time. On anything that isn't on the periodic table and on earth anyway. You can artificially constrain supply, for marketing purposes or because of voluntary stupidity.

Samsung must figure they can sell the parts to themselves or someone else for more money, a couple of days ago I figured (in a comment on/.) that they were trying to keep their parts and products businesses separate to not lose Apple as a cash cow, but they obviously had other id

Don't be silly. The only thing the iPhone had that competing phones didn't was a good web browser.

The iPhone was missing just about every other essential smartphone feature, and many basic features common to even the cheapest dumphones!

Let's not play-pretend that the launch phone even remotely resembled later models. It was a complete joke. You couldn't install apps, you could copy and paste, it couldn't handle MMS messages, you couldn't multitask, etc. It was absolutely awful.

People bought the iPhone because it was a ipod, phone, mobile communicator, and did all of those things very well. It is a gross oversimplification to say other devices had the features there was no need for the iPhone and the users are just dumb lemmings who buy anything Apple throws at them. Most people who don't "get" iPhones or Apple will never, for the same reason "there are only 10 times of people in the world, those who understand binary and those who don't". You don't get Apple because you can work